European Option Pricing Formula in Risk-Aversive Markets Based on the Risk Measure of VaR

Under the assumption of risk-aversive market, based on the risk measure of value at risk (VaR), this paper establishes an option pricing model for European options whose underlying assets are subject to geometric Brownian motion by means of terminal discount. Specifically, when the option traders are risk-neutral, they do not need risk compensation. At this time, the pricing model obtained in this paper degenerates into the Black-Scholes option pricing model, and the pricing model in this paper relaxes the assumptions of the Black-Scholes option pricing model, which is still applicable in the unbalanced and incomplete arbitrage market. The results show that the value of European option depends on the drift coefficient of the underlying asset μ, which is the risk-free interest rate r in the Black-Scholes model, because under the risk neutral assumption, the drift coefficient of the risk asset μ must be equal to the risk-free return rate r according to the no-arbitrage principle. Finally, taking the 50ETF option of Shanghai Stock Exchange as the empirical research object, the European option pricing model under the risk-aversive market and the existing model are analyzed by error indicators. The results demonstrate that the pricing effect of the model in this paper is better than the existing models, offering higher pricing accuracy.